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A project co-owned by NRG and MidAmerican

When solar equipment manufactures began posting big losses during 2011, forcing some to close factories or even file for bankruptcies, many of them wondered: when will the market recover? End of 2011? Mid-2012?

Not this year. Or even next year.

Solar panel makers are on track to deliver 59 gigawatts of their products worldwide this year when demand will likely hit 30 gigawatts, according to a report released by GTM Research Wednesday. To re-establish a healthy balance of supply and demand, an estimated 21 gigawatts of existing factories will close by 2015, said Shyam Mehta, author of the report.

The oversupply problem began to surface in early 2011 and led to a near 50% drop in wholesale solar panel prices last year. Lower government subsidies and worries about the financial health of Europe – the largest solar market – tempered demand for solar equipment last year. Emerging markets such as the Japan, China and India should see a big jump in solar panel installations this year. The U.S. also could experience a 75% growth in 2012. But all these increases aren’t going to be enough to make use of most of the solar panels that will be rolling off assembly lines, especially when some manufacturers have built new factories over the past year and a half or plan to add more production lines in the next few years.

Companies are building new factories for reasons that aren’t necessary foolish. Many startups only recently entered the market and need to gain manufacturing scale to lower their production costs, or else they will never be competitive, Mehta said. Several U.S. thin film companies, which use semiconductors that allow them to create ultra-thin solar panels, are in production expansion mode. They include Stion, SoloPower, HelioVolt and Nanosolar.

GE is building a solar panel factory in Colorado that will eventually reach an annual production capacity of 400 megawatts. The company plans to use a thin film technology developed by a startup it bought in 2011 and begin shipping panels from the new factory in 2013. Some Japanese and Chinese manufacturers who are not startups, such as Hanergy and Panasonic (which bought Sanyo and its solar business), also have been beefing up their production fleets.

Sometimes manufacturers expand production because they expect the oversupply problem to be short-term. They also could be executing plans they created a few years ago because building a factory requires time to raise money, gain regulatory approval and bring production equipment online. Meanwhile, other companies, such as GCL-Poly Energy, which is among the largest maker of silicon and silicon wafers (for making solar cells) in the world, are willing to expand production and lose money for a while in order to gain market share, Mehta said.

Finally, some companies that are adding factories “are just plain clueless,” he added.

China-based GCL-Poly is an interesting company to watch because it’s increasing silicon and wafer production while also aggressively pursuing solar energy generation projects. The company has announced or completed projects in place such as California and China, and in May it said it would team up with Spanish firm Isofoton to jointly develop 1 gigawatt of power projects worldwide.

GCL-Poly recently created a joint venture with New Jersey-based NRG Energy to provide solar power plant engineering and construction services. The joint venture, called Sunora Energy Solutions, inaugurated a factory in Arizona last week to make racks for mounting solar panels. Sunora also assembles the mounting equipment with solar panels from other suppliers before shipping them to construction sites.

The big decline in solar panel prices is great news for solar project builders, said John Plumlee, CEO of Sunora. Pre-assembling mounting gear with solar panels at a factory rather than at the job site, as is the typical practice, also will save money, he added.

“This is absolutely a great time to launch a solution business and a terrible time to be a module manufacturing business,” Plumlee said.